Keynesianism

Question 1

What is the fundamental idea that spawned Keynesianism?

Answer 1

Sticky wages/prices keep economy from adjusting and lead to unemployment.

Question 2

What is the Conservative Revolution?

Answer 2

The endgame of Keynesianism. Restore full employment by stabilizing the economy through deficit spending.

Question 3

What does Keynesianism say about fiscal and monetary policy?

Answer 3

Keynes thought fiscal policy should be flexible; monetary policy should be stable.

Question 4

What is the formula for calculating aggregate demand?

Answer 4

AD = C + I + G + NX

Question 5

What are the four points of Keynesianism?

Answer 5

1. AD is influenced by public opinion and can be eratic.
2. Changes in AD change output and unemployment first, causing surpluses or shortages.
3. Unemployment is typically not ideal, and is more dangerous than inflation
4. Active stabilization policy can reduce the size of fluctuations and unemployment..

Question 6

What are Automatic Stabilizers?

Answer 6

Policies that limit time lags. (Unemployment benefits, profit taxes, progressive income tax rates.)

Question 7

What is the MPC?

Answer 7

Marginal Propensity to Consume. How much of each individual dollar am I spending?

Question 8

What is the Keynesian multiplier?

Answer 8

If I get $100, and spend 80 on Jacob, and he spends 70 to Joe, and he spends 42, and Joe
gives Justine 40. Then there is 332 dollars of economic growth.

Question 9

What is the Philip’s Curve?

Answer 9

As inflation/interest rates Increase, unemployment decreases.

Question 10

What is the Paradox of Thrift?

Answer 10

If everyone saves, AD falls, income falls, and savings eventually fall.